AP Macro Unit 4 Lesson 3 - Spring 2011
A quiz on the macroeconomic equilibrium and the AD/AS model.
Questions and Answers
- 1.
Which of the following causes a negative supply shock?I. A technological advanceII. Increased productivityIII. An increase in oil prices
- A.
I only
- B.
II only
- C.
III only
- D.
I and II only
- E.
I, II and III
Correct Answer
C. III onlyExplanation
An increase in oil prices causes a negative supply shock because it raises the cost of production for businesses, reducing their profitability and ability to supply goods and services. This can lead to higher prices for consumers and a decrease in economic output. Technological advances and increased productivity, on the other hand, generally have a positive impact on the supply side of the economy by improving efficiency and reducing costs.Rate this question:
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- 2.
Which of the following causes a positive demand shock?
- A.
A decrease in wealth
- B.
Positive consumer expectations for the future
- C.
A decrease in government spending
- D.
An increase in taxes
- E.
A decrease in business investment
Correct Answer
B. Positive consumer expectations for the futureExplanation
Positive consumer expectations for the future cause a positive demand shock. When consumers have positive expectations about the future, they are more likely to increase their spending on goods and services. This increase in consumer spending leads to an increase in demand, which can stimulate economic growth and activity. Positive consumer expectations can create a sense of optimism and confidence in the economy, encouraging consumers to make purchases and invest in the future. This, in turn, can have a positive impact on businesses and overall economic performance.Rate this question:
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- 3.
Stagflation causes a(n) ___________ to the aggregrate price level and a(n) ___________ to real GDP?
- A.
Decrease; increase
- B.
Decrease; decrease
- C.
Increase; increase
- D.
Increase; decrease
- E.
Stays the same; stays the same
Correct Answer
D. Increase; decreaseExplanation
Stagflation refers to a situation where there is a combination of high inflation (increase in the aggregate price level) and stagnant economic growth (decrease in real GDP). This means that prices are rising while the economy is not growing, leading to a decrease in real GDP.Rate this question:
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- 4.
Which of the following statements is true if this economy is operating at P1 and Y1?I. The level of aggregate output equals potential output II. It is in short-run macroeconomic equilibriumIII. It is in long-run macroeconomic equilibrium
- A.
I only
- B.
II only
- C.
III only
- D.
I and III only
- E.
I, II and III
Correct Answer
B. II onlyExplanation
If the economy is operating at P1 and Y1, it means that it is in short-run macroeconomic equilibrium. This is because short-run macroeconomic equilibrium occurs when the aggregate output (Y) is equal to the aggregate demand (AD) at the current price level (P). In this case, the statement II only is true. The other statements, I and III, are not necessarily true as they depend on different conditions and factors.Rate this question:
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- 5.
The economy depicted in the graph above is experiencing a(n)
- A.
Shortage
- B.
Surplus
- C.
Recession
- D.
Expansion
- E.
None of the above
Correct Answer
C. RecessionExplanation
The correct answer is recession. This can be inferred from the graph, which shows a decline in economic activity. A recession is characterized by a significant decline in economic growth, often accompanied by a decrease in employment, consumer spending, and investment.Rate this question:
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Mar 22, 2023Quiz Edited by
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Mar 20, 2011Quiz Created by
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